WASHINGTON — While CUNA supports the proposed NCUA regulation expanding credit union service organization powers, the group expressed concern about expanding federal oversight of state-chartered CUSOs. NAFCU favors the business expansion but is undecided on the oversight change.
"It's a good step that they are looking at additional activities for CUSOs, and we are going to sort through the regulations to see if there are additional activities that could be added," said CUNA Senior Vice President and Deputy General Counsel Mary Mitchell Dunn.
"It's a great opportunity to take advantage of these services and save money because of economies of scale. This makes the rules more user friendly," agreed Carrie Hunt, senior counsel and director of regulatory affairs of NAFCU.
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Both organizations said they would discuss the proposals with their government affairs committees before submitting comments to NCUA, which are due on June 17.
Keith Leggett, senior economist at the American Bankers Association, had a less favorable reaction to the proposed rules changes.
"It's an illustration of the mission creep that is taking place among credit unions," he said. "Giving CUSOs more power shifts powers away from a regulated entity to one that is less regulated."
Leggett said his organization plans to file comments with the NCUA.
At its April 17 meeting, the NCUA board proposed regulation to expand several different CUSO activities. It would add credit card loan origination and payroll processing as permissible CUSO activities. It would also expand the scope of two the categories of services, allowing for services to include persons eligible for credit union members.
The legislative history of the Financial Services Regulatory Relief Act, NCUA's Board Action Memorandum contended, "indicates that Congress intended to allow FCUs 'to sell negotiable checks, money orders and other similar transfer instruments, including international and domestic electronic fund transfers, to anyone eligible for membership, regardless of their membership status.' The board believes the enactment of that law warrants a parallel expansion in the CUSO rule, since an FCU may elect to provide some or all of these types of services through the vehicle of a CUSO."
The proposal would also limit the ability to credit unions to recapitalize CUSOs in certain circumstances when they are insolvent.
More controversial for the credit union industry are proposals that would require federally insured state chartered credit unions that participate in CUSOs to give NCUA access to the CUSO's books and records. Also, federal credit unions involved in CUSOs must agree to give state regulators access to books and records.
Dunn said her organization's concerns center on whether the proposed changes in access to CUSO records would impose excessive compliance costs.
Hunt said they are "always concerned about the regulatory burden of any proposal," but NAFCU, which exclusively represents federal credit unions, is "still considering our position" and will circulate the rules to members.
A NCUA staff report said greater oversight is needed because some states don't regulate CUSOs closely enough, and therefore a federally insured credit union could lose more than the value of its investment in a CUSO.
"There are CUSOs, for example, that have used extensive leveraging from noncredit union sources to fund commercial loans. In turn, credit unions often buy participations in these loans, sometimes without having conducted an adequate due diligence themselves. Other CUSOs are engaging in loan origination despite being thinly capitalized, presenting risk to the credit union that losses or affirmative liability sustained by the CUSO will pass to them," the staff report obtained by Credit Union Times said.
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